[Congressional Record Volume 155, Number 92 (Thursday, June 18, 2009)]
[Senate]
[Pages S6807-S6809]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN (for himself, Mr. Coburn, and Mr. Grassley):
  S. 1287. A bill to provide for the audit of financial statements of 
the Department of Defense for fiscal year 2017 and fiscal years 
thereafter, and for other purposes; to the Committee on Armed Services.
  Mr. McCAIN. Mr. President, today Senators Coburn, Grassley, and I are 
introducing the Department of Defense Financial Accountability Act of 
2009, which imposes hard legislative deadlines on the Department of 
Defense to finally fix its broken bookkeeping system. This legislation 
is not only necessary, it is long overdue.
  The bill establishes a series of deadlines, beginning next year and 
running through 2017, for DoD and the Services to become audit ready. 
In particular, it compels the Services to account for military 
equipment, real property, inventory, operating materials and supplies, 
environmental liabilities, and fund balances with Treasury. Thereafter, 
DOD must undergo a full, independent audit of its financial statements. 
If DoD fails to meet any deadline set forth in the bill, it must timely 
document and explain its failure to Congress.
  The Department of Defense is the most massive and complex of any 
organization, public or private. It is entrusted with more taxpayer 
dollars than any other federal department or agency. For fiscal year 
2009 alone, Congress appropriated over $513 billion for DoD's base 
budget. It added an additional $7.4 billion for DoD in this year's so-
called stimulus bill.
  To support its business functions, DoD has thousands of separate 
business systems that it has layered upon one another for decades. They 
are archaic, overly complex, and error-prone. They are sometimes 
redundant and often lack standardization. It is no wonder that since 
1995, GAO has classified the Pentagon's financial management as high-
risk, which makes it vulnerable to fraud and waste. Indeed, according 
to GAO, DoD's accounting problems cost the American taxpayer $13 
billion in 2005--that's $35 million a day.
  This has been a problem for decades. In 1975, the Army disclosed that 
it had spent $225 million over its budget because of a serious 
breakdown in its accounting and financial management reporting system. 
For fiscal year 1986, the Navy failed to disclose $58 million in real 
property, $1.7 billion in guaranteed loans, and data on operating 
leases on ships. According to the Government Accountability Office, 
between 1970 and 1980, the Air Force incurred numerous over obligations 
in amounts up to $210 million of its industrial funds. This would never 
be tolerated in the private sector.
  This is not only about numbers and audits--this is also about the 
security of our troops and our nation. These broken systems affect 
operations and endanger our troops. Over the years, the GAO has 
reported that the Pentagon's poor financial management has caused pay 
problems for National Guard and reservists; impeded delivery of food 
and other essential supplies to U.S. troops; and had the Pentagon 
scrambling to identify and locate 250,000 defective chem-bio suits, 
some of which were being sold over the Internet.
  Let me read into the record one account of how this impacted ongoing 
operations in Iraq. According to a February 5, 2006 Star Tribune news 
article: ``When Perry Jeffries was serving in Iraq, the computers 
showed that his 4th Infantry Division troops had access to drinking 
water, a place to shower and working wheels on their vehicles. As the 
first sergeant came to understand when scrounging for water, towing 
immobilized tanks and driving to other posts or to Kuwait to pick up 
needed parts, the Pentagon's bookkeeping doesn't always match reality. 
Jefferies saw the real-life results of what has been a visible 
`accounting' problem in Washington--the Pentagon's inability to keep 
accurate track of transactions and assets.''
  Congress has already enacted several laws mandating financial 
management reform and the Office of Management and Budget has issued 
circulars on internal controls over financial reporting and financial 
management systems. Notably, none contain hard deadlines for an audit.
  Meanwhile, DoD has repeatedly promised Congress that it would fix the 
problem. In 1999 and 2000, then-DoD Comptroller William Lynn testified 
before Congress that financial management reform was his highest 
priority. In fact, Mr. Lynn's successor, Dov Zakheim, set a deadline to 
have the Department of Defense audit ready by 2007. Under DoD's latest 
Financial Improvement and Audit Readiness Plan, that deadline is now 
2017.
  I want to recognize that the Department has tried, with varying 
degrees of effort, to improve financial management, but DoD auditors 
and GAO continue to report significant weaknesses.

[[Page S6808]]

  I appreciate that our military is engaged in ongoing operations in 
Iraq and Afghanistan. That is why Senators Coburn, Grassley and I have 
sought to be reasonable and realistic with the deadlines. They are the 
same deadlines in DoD's current Financial Improvement and Audit 
Readiness Plan.
  It has been 19 years since the CFO Act was passed requiring DoD and 
other departments to have an audit. It will be 2019--nearly 30 years 
after the passage of the CFO Act--before the Department of Defense is 
able to get an audit opinion, if we hold them to their current 
timeline. If we do not, this may never happen.
  The ultimate outcome of this legislation will be the implementation 
of effective financial management processes, efficient business systems 
and strong internal controls that are essential to producing timely, 
reliable and useful financial information. Quality information will 
allow DoD to make informed business decisions and ensure accountability 
on an ongoing basis.
  Every dollar we save through improved financial management is another 
dollar for our troops--for body armor, for medical supplies, for 
veterans care. Improved financial systems will ensure that troops in 
the future do not find themselves in the same straits as the 4th 
Infantry Division, searching for supplies that a computer says they 
already have.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1287

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Department of Defense 
     Financial Accountability Act of 2009''.

     SEC. 2. AUDIT OF FINANCIAL STATEMENTS OF THE DEPARTMENT OF 
                   DEFENSE.

       (a) Financial Statements of Department of Defense.--
       (1) Validation as ready for audit.--The financial 
     statements of the Department of Defense for a fiscal year 
     shall be validated as ready for audit by not later than 
     September 30, 2017.
       (2) Audit.--The financial statements of the Department of 
     Defense for a fiscal year shall be audited, and an opinion 
     shall be rendered pursuant to such audit, for the first 
     fiscal year for which the financial statements are ready for 
     audit, but not later than fiscal year 2017, and for each 
     fiscal year thereafter.
       (3) Deadline for audit.--The audit of the financial 
     statements of the Department of Defense shall be completed as 
     follows:
       (A) In the event the financial statements for a fiscal year 
     before fiscal year 2017 are ready for audit, by not later 
     than two years after the last day of such fiscal year.
       (B) In the case of the financial statement fiscal year 
     2017, by not later than September 30, 2019.
       (C) In the case of the financial statement for any fiscal 
     year after fiscal year 2017, by not later than one year after 
     the last day of such fiscal year.
       (b) Financial Statements of the Military Departments and 
     DLA.--In furtherance of compliance with the requirements in 
     subsection (a), the following requirements shall apply:
       (1) Department of the army.--
       (A) Validation as ready for audit.--The financial 
     statements of the Department of the Army for a fiscal year 
     shall be validated as ready for audit by not later than March 
     31, 2017.
       (B) Audit.--The financial statements of the Department of 
     the Army for a fiscal year shall be audited, and an opinion 
     shall be rendered pursuant to such audit, for the first 
     fiscal year for which the financial statements are ready for 
     audit, but not later than fiscal year 2017, and for each 
     fiscal year thereafter.
       (C) Deadline for audit.--The audit of the financial 
     statements of the Department of Army shall be completed as 
     follows:
       (i) In the event the financial statements for a fiscal year 
     before fiscal year 2017 are ready for audit, by not later 
     than two years after the last day of such fiscal year.
       (ii) In the case of the financial statement fiscal year 
     2017, by not later than September 30, 2019.
       (iii) In the case of the financial statement for any fiscal 
     year after fiscal year 2017, by not later than one year after 
     the last day of such fiscal year.
       (2) Department of the navy.--
       (A) Validation as ready for audit.--The financial 
     statements of the Department of the Navy for a fiscal year 
     shall be validated as ready for audit by not later than March 
     31, 2016.
       (B) Audit.--The financial statements of the Department of 
     the Navy for a fiscal year shall be audited, and an opinion 
     shall be rendered pursuant to such audit, for the first 
     fiscal year for which the financial statements are ready for 
     audit, but not later than fiscal year 2016, and for each 
     fiscal year thereafter.
       (C) Deadline for audit.--The audit of the financial 
     statements of the Department of Navy shall be completed as 
     follows:
       (i) In the event the financial statements for a fiscal year 
     before fiscal year 2016 are ready for audit, by not later 
     than two years after the last day of such fiscal year.
       (ii) In the case of the financial statement fiscal year 
     2016, by not later than September 30, 2018.
       (iii) In the case of the financial statement for any fiscal 
     year after fiscal year 2016, by not later than one year after 
     the last day of such fiscal year.
       (3) Department of the air force.--
       (A) Validation as ready for audit.--The financial 
     statements of the Department of the Air Force for a fiscal 
     year shall be validated as ready for audit by not later than 
     September 30, 2016.
       (B) Audit.--The financial statements of the Department of 
     the Air Force for a fiscal year shall be audited, and an 
     opinion shall be rendered pursuant to such audit, for the 
     first fiscal year for which the financial statements are 
     ready for audit, but not later than fiscal year 2016, and for 
     each fiscal year thereafter.
       (C) Deadline for audit.--The audit of the financial 
     statements of the Department of the Air Force shall be 
     completed as follows:
       (i) In the event the financial statements for a fiscal year 
     before fiscal year 2016 are ready for audit, by not later 
     than two years after the last day of such fiscal year.
       (ii) In the case of the financial statement fiscal year 
     2016, by not later than September 30, 2018.
       (iii) In the case of the financial statement for any fiscal 
     year after fiscal year 2016, by not later than one year after 
     the last day of such fiscal year.
       (4) Defense logistics agency.--
       (A) Validation as ready for audit.--The financial 
     statements of the Defense Logistics Agency for a fiscal year 
     shall be validated as ready for audit by not later than 
     September 30, 2017.
       (B) Audit.--The financial statements of the Defense 
     Logistics Agency for a fiscal year shall be audited, and an 
     opinion shall be rendered pursuant to such audit, for the 
     first fiscal year for which the financial statements are 
     ready for audit, but not later than fiscal year 2017, and for 
     each fiscal year thereafter.
       (C) Deadline for audit.--The audit of the financial 
     statements of the Defense Logistics Agency shall be completed 
     as follows:
       (i) In the event the financial statements for a fiscal year 
     before fiscal year 2017 are ready for audit, by not later 
     than two years after the last day of such fiscal year.
       (ii) In the case of the financial statement fiscal year 
     2017, by not later than September 30, 2019.
       (iii) In the case of the financial statement for any fiscal 
     year after fiscal year 2017, by not later than one year after 
     the last day of such fiscal year.
       (c) Validation as Ready for Audit of Financial Statements 
     Regarding Particular Matters.--In furtherance of compliance 
     with the requirements in subsections (a) and (b), the 
     following requirements shall apply:
       (1) Military equipment.--
       (A) Department of the army.--The financial statements of 
     the Department of the Army with respect to military equipment 
     shall be validated as ready for audit by not later than 
     December 31, 2013.
       (B) Department of the navy.--The financial statements of 
     the Department of the Navy with respect to military equipment 
     shall be validated as ready for audit by not later than 
     September 30, 2014.
       (C) Department of the air force.--The financial statements 
     of the Department of the Air Force with respect to military 
     equipment shall be validated as ready for audit by not later 
     than March 31, 2016.
       (2) Real property.--
       (A) Department of the army.--The financial statements of 
     the Department of the Army with respect to real property 
     shall be validated as ready for audit by not later than 
     December 31, 2013.
       (B) Department of the navy.--The financial statements of 
     the Department of the Navy with respect to real property 
     shall be validated as ready for audit by not later than March 
     31, 2014.
       (C) Department of the air force.--The financial statements 
     of the Department of the Air Force with respect to real 
     property shall be validated as ready for audit by not later 
     than September 30, 2014.
       (D) Defense logistics agency.--The financial statements of 
     the Defense Logistics Agency with respect to real property 
     shall be validated as ready for audit by not later than March 
     31, 2015.
       (3) Inventory.--
       (A) Department of the army.--The financial statements of 
     the Department of the Army with respect to inventory shall be 
     validated as ready for audit by not later than March 31, 
     2017.
       (B) Department of the navy.--The financial statements of 
     the Department of the Navy with respect to inventory shall be 
     validated as ready for audit by not later than December 31, 
     2013.
       (C) Department of the air force.--The financial statements 
     of the Department of the Air Force with respect to inventory 
     shall be validated as ready for audit by not later than 
     September 30, 2016.

[[Page S6809]]

       (D) Defense logistics agency.--The financial statements of 
     the Defense Logistics Agency with respect to inventory shall 
     be validated as ready for audit by not later than September 
     30, 2015.
       (4) Operating material and supplies.--
       (A) Department of the army.--The financial statements of 
     the Department of the Army with respect to operating material 
     and supplies shall be validated as ready for audit by not 
     later than March 31, 2017.
       (B) Department of the navy.--The financial statements of 
     the Department of the Navy with respect to operating material 
     and supplies shall be validated as ready for audit by not 
     later than March 31, 2016.
       (C) Department of the air force.--The financial statements 
     of the Department of the Air Force with respect to operating 
     materials and supplies shall be validated as ready for audit 
     by not later than September 30, 2016.
       (5) Environmental liabilities.--
       (A) Department of the army.--The financial statements of 
     the Department of the Army with respect to environmental 
     liabilities shall be validated as ready for audit by not 
     later than December 31, 2013.
       (B) Department of the navy.--The financial statements of 
     the Department of the Navy with respect to environmental 
     liabilities shall be validated as ready for audit by not 
     later than March 31, 2010.
       (C) Department of the air force.--The financial statements 
     of the Department of the Air Force with respect to 
     environmental liabilities shall be validated as ready for 
     audit by not later than December 31, 2011.
       (D) Defense logistics agency.--The financial statements of 
     the Defense Logistics Agency with respect to environmental 
     liabilities shall be validated as ready for audit by not 
     later than September 30, 2017.
       (6) Fund balance with the treasury.--
       (A) Department of the army.--The financial statements of 
     the Department of the Army with respect to the fund balance 
     with the Treasury shall be validated as ready for audit by 
     not later than September 30, 2010.
       (B) Department of the navy.--The financial statements of 
     the Department of the Navy with respect to the fund balance 
     with the Treasury shall be validated as ready for audit by 
     not later than December 31, 2010.
       (C) Department of the air force.--The financial statements 
     of the Department of the Air Force with respect to the fund 
     balance with the Treasury shall be validated as ready for 
     audit by not later than December 31, 2011.
       (D) Defense logistics agency.--The financial statements of 
     the Defense Logistics Agency with respect to the fund balance 
     with the Treasury shall be validated as ready for audit by 
     not later than September 30, 2011.
       (d) Performance of Audits and Validations.--Any audit or 
     validation as ready for audit of a financial statement 
     required under subsections (a) through (c) may be performed 
     by an independent auditor qualified for the performance of 
     such audit or validation, as the case may be.
       (e) Action if Compliance Not Achieved.--
       (1) In general.--In the event the Department of Defense or 
     a component of the Department of Defense is unable to achieve 
     compliance with a requirement in subsection (a), (b), or (c) 
     by the completion date for such requirement otherwise 
     specified in the applicable provision of such subsection, the 
     Secretary of Defense or the head of the component, as 
     applicable, shall submit to the appropriate committees of 
     Congress, not later than 30 days after the completion date 
     otherwise so specified, a report setting forth the following:
       (A) A statement of the reasons why compliance with the 
     requirement was not achieved by the completion date for the 
     requirement.
       (B) A description of the actions to be taken to achieve 
     compliance with the requirement.
       (C) A proposed completion date for achievement of 
     compliance with the requirement.
       (2) Construction.--Nothing in this subsection shall be 
     construed to waive any deadline for the completion of a 
     requirement under subsections (a) through (c).
       (f) Semiannual Reports on Financial Improvement Audit 
     Readiness Plan.--
       (1) In general.--Not later than May 15 and November 15 each 
     year, the Under Secretary of Defense (Comptroller) shall 
     submit to the appropriate committees of Congress a report on 
     progress under the financial improvement audit readiness 
     (FIAR) plan during two calendar year quarters ending March 31 
     and September 30, respectively, of such year.
       (2) Elements.--Each report under paragraph (1) shall 
     include, for the two calendar year quarters covered by such 
     report, the following with respect to the portion of such 
     report relating to priority segments:
       (A) A detailed description of any deficiencies identified 
     during discovery.
       (B) A description of the actions to be taken to remedy any 
     deficiency so identified.
       (C) A deadline for the completion of any actions set forth 
     under subparagraph (B).
       (g) Definitions.--In this section:
       (1) Appropriate committees of congress.--The term 
     ``appropriate committees of Congress'' means--
       (A) the Committee on Armed Services and the Committee on 
     Homeland Security and Governmental Affairs of the Senate; and
       (B) the Committee on Armed Services and the Committee on 
     Oversight and Government Reform of the House of 
     Representatives.
       (2) Validation.--The term ``validation'', with respect to 
     the auditability of financial statements, means a 
     determination following an examination engagement that the 
     financial statements comply with generally accepted 
     accounting principles and applicable laws and regulations and 
     reflect reliable internal controls.
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